How to Manage Cash Flow in a Seasonal Business

by Suzanne Kearns

3 min read

Most of the standard rules for managing cash flow fly out the window when it comes to seasonal businesses. So if you rely on a certain time of the year for all your profits but don’t understand the rules for seasonal cash-flow management, your business could suffer. We spoke to Tom Shay, principal at Profits Plus Solutions, to get some insight into this important topic.

Small Business Center: What kind of cash-flow issues does a seasonal business owner experience that other business owners don’t?

Tom Shay: In a seasonal business, the sales go away in the off-season, but the basic operating expenses don’t. The rent or mortgage, insurance, taxes, utilities, and some salaries still have to be paid. In addition, this type of business incurs expenses to prepare the business for the next season.

What should seasonal business owners do differently with regard to their cash-flow projections?

Calculating the projected cash flow for a seasonal business is essentially the same process, but a little easier. That’s because when doing cash-flow projections for a year-round business, you need to estimate both revenue and expenses, some of which fluctuate. But when a business is shut down for the off-season, you won’t need to estimate revenue, and many of the normally fluctuating expenses become very predictable.

Is it important to speed up customer payments prior to the slow season? Can you give some examples of how business owners can do that?

Yes it is. Remember that any inventory sitting on the shelf at the end of the season is like money sitting on that shelf. The difference is you can’t spend it. One business owner I know shuts down in mid-September, and to get rid of his excess inventory and increase his cash, he does a giant clearance one-day sale on the last Friday of August. I also know a power equipment dealer who offers an off-season special for equipment maintenance and storage. Customers bring their equipment to him at the end of the season, and for a fee, he cleans it, repairs it if needed, and stores it for the winter so it’s ready to go when they want it in the spring. The customers pay the service and storage fees up-front, and if there is a repair bill, they pay it as the work is done. Doing this enables him to keep his key mechanics employed year-round.

Is it important for seasonal business owners to cut down on expenses during the slow season?

Yes, when there is no revenue, the owner should cut expenses to a bare minimum. For example, one way to do this is to negotiate with the owner of their building and ask for a higher rent during the peak season, and a very low rent during the off-season.

Should seasonal business owners ever consider a loan to help them through the slow times?

Many business owners have a line of credit established for the slow times. It pays the bills in the off-season, and then during the peak season, they pay off the line of credit. If the line of credit can’t be paid off during the peak season, it’s usually an indication that the business’ cash flow is not sufficient enough to sustain the business. The goal should be to use less credit each year until it is no longer needed.

What about product diversification for the slow times? How that might work?

The key to diversification is to focus on who your customer is, not on what your core products are. Your customers spend money year-round, and your goal is to determine what they are buying during your off-season, and then add those products or services. For instance, I see landscapers who go into snow removal for their slow season, and garden centers that do pumpkin patches, and then Christmas decorations for their slow seasons.

If you could give only one piece of advice to business owners going into their first slow season, what would it be?

Have a budget. Without one you won’t understand how deep the financial hole can be during the off-season.

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